Mounteer v. HOA for the Colony

This opinion is subject to revision before final
publication in the Pacific Reporter
2018 UT 23
IN THE
SUPREME COURT OF THE STATE OF UTAH
MOUNTEER ENTERPRISES, INC.,
Appellee,
v.
HOMEOWNERS ASSOCIATION FOR THE COLONY AT WHITE PINE CANYON,
Appellant.
No. 20170165
Filed June 5, 2018
On Direct Appeal
Third District, Summit County
The Honorable Kara Pettit
No. 110500200
Attorneys:
Joseph E. Wrona, Jared C. Bowman, Park City, for appellee
Troy L. Booher, Beth E. Kennedy, Salt Lake City, for appellant
ASSOCIATE CHIEF JUSTICE LEE authored the opinion of the Court, in
which CHIEF JUSTICE DURRANT, JUSTICE HIMONAS, JUSTICE PEARCE, and
JUSTICE PETERSEN joined.
ASSOCIATE CHIEF JUSTICE LEE, opinion of the Court:
¶1 The Homeowners Association for the Colony at White
Pine Canyon (HOA) hired Mounteer Enterprises, Inc. to provide
snow removal services. The contract required Mounteer to maintain
a certain amount of insurance coverage. And when the HOA
discovered that Mounteer had failed to purchase the required
insurance, the HOA terminated the contract.
¶2 Mounteer filed suit, asserting that the HOA had waived
its right to terminate the contract on that ground. It reasoned that the
HOA had effectively waived the insurance requirement by accepting
Mounteer’s certificates of insurance and by making payments to
Mounteer despite its noncompliance. The HOA responded by
MOUNTEER ENTERPRISES v. HOA FOR THE COLONY
Opinion of the Court
pointing to an antiwaiver clause in the contract—a provision stating
that the HOA’s failure to notice a deficiency in Mounteer’s insurance
coverage cannot be construed as a waiver of the insurance provision.
¶3 The HOA moved for summary judgment on the
antiwaiver issue and moved to exclude evidence relating to a
previous contract between the parties. The district court denied both
motions and a subsequent motion for judgment notwithstanding the
verdict.
¶4 We reverse the district court’s denial of the HOA’s
motion for judgment notwithstanding the verdict. We hold that a
party may implicitly waive an antiwaiver provision through
conduct, but there must be clear intent to waive both the underlying
provision and the antiwaiver provision. And we conclude that the
HOA’s failure to insist on performance of the insurance provision
here does not establish such clear intent.
I
¶5 In 2006, the Homeowners Association for the Colony at
White Pine Canyon entered into a four-year contract with Mounteer
Enterprises, Inc. for snow removal services at its development in
Park City, Utah. The contract required Mounteer to maintain $7
million of aggregate liability insurance with (1) a general liability
policy for $1 million per occurrence and $5 million in the aggregate
and (2) an umbrella policy for $1 million per occurrence and $2
million in the aggregate.
¶6 The contract provided that if Mounteer failed to
purchase the necessary insurance the HOA could immediately
terminate the contract, withhold payments until Mounteer cured the
default, or purchase the required insurance and deduct the
premiums from payments due to Mounteer. The contract also
contained an antiwaiver provision. That provision stated that
“[f]ailure of the [HOA] to demand such certificate or other evidence
of full compliance with these insurance requirements or failure of the
[HOA] to identify a deficiency in the form that is provided shall not
be construed as a waiver of Mounteer’s obligation to maintain such
insurance.”
¶7 During the four-year contract ending in November 2010
Mounteer submitted four insurance certificates to the HOA. Each
certificate showed only $5 million of aggregate liability insurance
coverage. And the HOA paid Mounteer for its services despite this
deficiency. In 2010 the two parties entered into a new four-year
contract with substantially similar terms, including identical
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Opinion of the Court
insurance requirements and antiwaiver provision. The major
difference between the contracts was a reduction in the mileage
Mounteer would be servicing, as the HOA gave part of its snow
removal business to another company.
¶8 Three months into the 2010 contract, the HOA asked
Mounteer to surrender over three miles of the roadway Mounteer
was contracted to service. When Mounteer refused, the HOA told
Mounteer that it planned to find a way to terminate the contract. The
HOA then terminated the contract after finding that Mounteer had
purchased only $5 million of insurance coverage.
¶9 Mounteer sued for breach of contract and breach of the
implied covenant of good faith and fair dealing. It asserted that the
HOA had implicitly waived its right to require strict compliance
with the insurance provision when the HOA approved the
certificates of insurance and paid Mounteer every billing cycle. And
it claimed that this conduct was enough to overcome the existence of
the antiwaiver provision.
¶10 The HOA moved for summary judgment. It argued that
it had not waived the insurance requirement by its conduct because
the antiwaiver provision expressly foreclosed a finding of such
waiver. The HOA also filed a motion in limine, seeking to exclude
evidence that Mounteer had purchased $5 million of aggregate
liability insurance every year from 2006 to 2010 and had submitted
certificates of insurance to that effect.
¶11 The district court denied both motions. It first held that
the HOA’s “pattern of inaction from 2006 to 2011” was relevant to
show “an intent to relinquish the right to demand strict compliance
with the insurance provisions.” It also held that “[i]t is within the
jury’s power to find that [an antiwaiver] provision was itself waived
or modified by the parties’ agreement or conduct.” (Internal
quotation marks omitted). And it accordingly instructed the jury that
“[t]he existence of an anti-waiver provision is merely one factor to
consider in determining whether a party has waived its right under
the agreement, and a no-waiver provision can itself be waived.”
¶12 The jury found the HOA liable for breach of contract and
awarded Mounteer $578,000 in damages. The district court then
awarded Mounteer attorney fees and costs as the prevailing party.
¶13 The HOA filed this appeal. It challenges the district
court’s denial of its motion for judgment notwithstanding the
verdict, a question we review for correctness. See USA Power, LLC v.
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PacifiCorp, 2016 UT 20, ¶ 29, 372 P.3d 629. It also appeals the denial
of its motion in limine.
II
¶14 We reverse the district court’s denial of the motion for
judgment notwithstanding the verdict without reaching the HOA’s
motion in limine argument. We find that the HOA did not waive its
right to require $7 million in insurance coverage and to terminate the
contract immediately upon default.
¶15 We conclude first that Mounteer must establish a clear
waiver of both the insurance provision and the antiwaiver provision.
We accept that conduct alone can impliedly waive a contractual
provision even with the existence of an antiwaiver provision; but we
hold that such conduct must evidence an intentional relinquishment
of the party’s contractual rights. And we conclude that the mere
failure to enforce the underlying contractual provision does not rise
to this level. We turn second to the question whether Mounteer must
show proof of prejudice to prevail on its waiver claim. And we
conclude that prejudice is not an element of waiver.
A
¶16 The contract between the parties clearly states that the
HOA could terminate the contract in the event Mounteer failed to
purchase $7 million of aggregate liability insurance. Mounteer looks
for a way around this language by an appeal to the doctrine of
waiver. This doctrine looks to the conduct or communication of the
parties to determine whether the HOA waived its right to insist on
performance under the contract.
¶17 Courts do not lightly consider a contract provision
waived, however. A party may establish waiver only where there is
an “intentional relinquishment of a known right.” Wilson v. IHC
Hosps., Inc., 2012 UT 43, ¶ 61, 289 P.3d 369 (citation omitted). Such
waiver can be express or implied. Id. ¶ 62. And though waiver may
be implied, the party asserting implied waiver must establish that
the other party “intentionally act[ed] in a manner inconsistent with
its contractual rights . . . .” Meadow Valley Contractors, Inc. v. State
Dep’t. of Transp., 2011 UT 35, ¶ 45, 266 P.3d 671 (citation omitted).
¶18 So if the otherwise-breaching party can show that the
other party intentionally waived its rights under the contract,
noncompliance with the relevant provision will not be construed as a
breach. This is because a waiver of a contract provision is itself a
modification of the agreement between the parties, and when
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established should have as much binding power as the contract
itself. Thus, waiver prevents a “waiving party from lulling the other
party into a belief that strict compliance with a contractual duty will
not be required” and then enforcing its contractual rights upon
default. 13 WILLISTON ON CONTRACTS § 39:15 (4th ed. 2018).
¶19 The calculus changes, however, when a contract also
contains an antiwaiver provision. Antiwaiver provisions aim to give
contracting parties flexibility in enforcing their rights under the
contract—enforcement that would often be to the detriment of the
other party—without “result[ing] in a complete and unintended loss
of its contract rights if it later decides that strict performance is
desirable.” Id. § 39:36. So if the specific language of the antiwaiver
clause expressly precludes parties from construing certain conduct
as a waiver of contractual rights, courts must enforce this provision
as part of the parties’ agreement. When a contract contains an
antiwaiver provision, a party cannot waive a contractual right
merely by failing to enforce the provision establishing that right. See
id.
¶20 The bite of an antiwaiver provision, however, is
tempered by the general view that a party may waive a contract
provision despite the existence of an antiwaiver clause. See id. Even
an antiwaiver provision is subject to waiver, in other words. After
all, parties always have the right to modify their rights by amending
the contract, and waiver of an antiwaiver provision is just such an
intentional modification of the contract.
¶21 For these reasons a party asserting waiver in the face of
an antiwaiver clause must establish “a clear intent to waive both the
[antiwaiver] clause and the underlying contract provision.” Id.
(emphasis added). And this second waiver must meet the same
standard as waiver of the underlying provision—there must be an
intentional relinquishment of that right.1 See id.
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1 The district court relied on dicta from ASC Utah, Inc. v. Wolf
Mountain Resorts, L.C., stating that “the existence of an antiwaiver
provision [is] merely one factor to consider in determining whether a
party has waived its rights under the agreement.” 2010 UT 65, ¶ 37,
245 P.3d 184. This is correct in the sense that the existence of an
antiwaiver provision “is not determinative” and such a provision
“can itself be waived.” Id. ¶¶ 37–38. But ASC Utah does not relieve
Mounteer of its burden of establishing that the HOA intentionally
(continued . . .)
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¶22 This requirement gives the antiwaiver provision effect.
An antiwaiver provision embodies the agreement between the
parties—an agreement that specifically prohibits the mere failure to
enforce a contractual right as being construed as waiver of that right.
Allowing waiver where the party has not clearly waived the
antiwaiver provision would undo this agreement and would “beg[]
the question of validity of the non-waiver clause.” Van Bibber v.
Norris, 419 N.E.2d 115, 121 (Ind. 1981); see also Shields Ltd. P’ships v.
Bradberry 526 S.W.3d 471, 484 (Tex. 2017) (“Such a contract-
enforcement principle would be ‘illogical since the very
conduct which the clause is designed to permit [without effecting a
waiver would be] turned around to constitute waiver of the clause
permitting [a party to engage in] the conduct [without effecting a
waiver].’” (alterations in original) (citation omitted)).
¶23 That leaves the question of what a party must show to
establish waiver of both the underlying provision and the antiwaiver
clause. We have held that an express waiver of a contractual right is
sufficient to waive both provisions. See Calhoun v. Universal Credit
Co., 146 P.2d 284, 285–86 (Utah 1944). But we have not considered
whether an antiwaiver provision may be waived impliedly—by the
mere failure to insist on performance of the underlying provision of
a contract.
¶24 We now reach that question. And we conclude that the
mere failure to insist on performance of an underlying contract
provision is insufficient to establish the intentional relinquishment of
a party’s rights under the antiwaiver provision. We so hold because
the failure to insist on performance after breach is entirely consistent
with the rights set out in the antiwaiver provision—rights of
flexibility that often benefit the otherwise-breaching party. And a
finding of waiver in such circumstances would thus render the
antiwaiver provision meaningless.
¶25 To establish a waiver of both the insurance clause and
the antiwaiver provision Mounteer would have to present evidence
sufficient to establish that the HOA effectively agreed not to demand
performance. An express waiver would do that. If Mounteer could
show that the HOA expressly agreed to abandon its right to insist on
(continued . . .)
relinquished its rights in both the insurance provision and the
antiwaiver provision.
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Opinion of the Court
the insurance provision then the HOA could not point to the
antiwaiver clause in response; an express waiver is a clear
abandonment of the antiwaiver clause in this circumstance.
¶26 But the mere failure to insist on performance under the
insurance provision cannot give Mounteer a reasonable basis for
concluding that the HOA relinquished its right to insist on exact
performance. Again, such conduct is entirely compatible with the
antiwaiver clause. And Mounteer is accordingly in no position to
insist that the HOA’s failure to insist on performance changes the
parties’ agreement.
¶27 In so holding we do not foreclose the possibility that
implied waiver may be effected by conduct more clearly amounting
to affirmative disavowal of the underlying provision of a contract.
The question, again, is whether such conduct is sufficient to establish
a reasonable basis for the conclusion that a party has effectively
agreed not to insist on performance. And conduct more extensive
than that at issue here could possibly satisfy that standard.
¶28 The circumstance at issue in ASC Utah, Inc. v. Wolf
Mountain Resorts, L.C., 2010 UT 65, 245 P.3d 184, may be one
example. ASC Utah involved the alleged waiver of an arbitration
clause by a party’s extensive participation in litigation over several
years (and even the assertion of a counterclaim). Such conduct seems
distinguishable from the mere failure to insist on a contracting
party’s performance of a contractual duty. When a party engages
actively in litigation it has (at least arguably) affirmatively
disavowed the right to arbitrate. And such affirmative disavowal can
be viewed as sufficient to establish a reasonable basis for the
conclusion that a party intends to disregard the agreement to
arbitrate (and also waived the antiwaiver provision). That is the
holding of the ASC Utah case.2
¶29 And we find ASC Utah distinguishable from the one
presented here. Here the HOA merely failed to notice the deficiency
in the insurance certificates and to immediately insist on
performance of the insurance requirement. Such failure cannot
amount to waiver without eviscerating the antiwaiver provision.
That provision gave the HOA the flexibility not to inspect the
_____________________________________________________________
2 ASC Utah can also be understood as an express waiver case, in
that the waiving party there “expressly stated its intent” to waive
“on the record.” 2010 UT 65, ¶ 30.
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insurance certificates without giving up its right to enforce the
provision if it found that Mounteer had breached. There was nothing
in the conduct of the HOA that indicated its intent to disavow the
insurance provision.
¶30 When Mounteer failed to acquire sufficient insurance it
ran the risk that the HOA would discover the deficiency and
terminate the contract. And the HOA was thus within its rights in
terminating Mounteer for its failure to secure the liability insurance
required by the contract. We reverse on this basis.
B
¶31 The HOA has also contended that even if it intentionally
relinquished its rights in the insurance provision and the antiwaiver
provision, we cannot find waiver because there is no prejudice. We
need not reach this issue because we have ruled in the HOA’s favor
without regard to any proof of prejudice. But we address this
question because the briefing in this case has highlighted a point of
tension in our case law—on whether prejudice is a required element
of waiver.
¶32 For a time we articulated a standard formulation of
waiver that did not mention any requirement of proof of prejudice.
In Soter’s, Inc. v. Deseret Federal Savings & Loan Ass’n, for example, we
stated that waiver is the “intentional relinquishment of a known
right.” 857 P.2d 935, 942 (Utah 1993). And we made no reference to a
requirement of proof of prejudice. The prejudice element crept into
our cases, however, in In re Estate of Flake, 2003 UT 17, ¶ 31, 71 P.3d
589. There we made reference to a requirement of proof of prejudice
through reliance on a court of appeals decision, Interwest Constr. v.
Palmer, 886 P.2d 92 (Utah Ct. App. 1994). Our subsequent cases have
gone both ways—sometimes we have followed Soter’s without
mentioning prejudice, see, e.g., Lane Myers Constr., LLC v. Nat’l City
Bank, 2014 UT 58, ¶ 31, 342 P.3d 749, and sometimes we have
followed Estate of Flake by including the element of prejudice, see,
e.g., Meadow Valley Contractors, Inc., 2011 UT 35, ¶ 45.
¶33 This tension is problematic. The time has come for us to
clarify our law and to speak with one voice. And we now repudiate
the requirement of proof of prejudice as an element of waiver. The
prejudice requirement is a doctrinal misfit in the law of waiver. See
13 WILLISTON ON CONTRACTS § 39:28 (noting that “there is no need to
show reliance by the party asserting or claiming the waiver”);
Johnston Equip. Corp. of Iowa v. Indus. Indem., 489 N.W.2d 13, 17 (Iowa
1992) (“Prejudice is irrelevant to a claim of waiver.”). Waiver is
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dependent only upon a showing of words or conduct manifesting
the “intentional relinquishment of a known right.” See Wilson, 2012
UT 43, ¶ 61 (citation omitted). Prejudice, on the other hand, is
relevant only as an element of estoppel. A party may be estopped
from contradicting a prior “statement, admission, act, or failure to
act” only upon a showing that another party was harmed by its
reliance on the prior statement or act. See Nunley v. Westates Casing
Servs., Inc., 1999 UT 100, ¶ 34, 989 P.2d 1077 (citation omitted).
¶34 We now so hold. And we repudiate our prior decisions
that speak of prejudice as an element of waiver.
III
¶35 We reverse the district court’s decision denying the
HOA’s motion for judgment notwithstanding the verdict. Mounteer
produced no evidence of waiver beyond the HOA’s failure to insist
on performance of the insurance requirements. And because the
HOA was within its rights to terminate the contract, Mounteer’s
claim of breach of the implied covenant of good faith and fair
dealing necessarily fails.
¶36 We also reverse the district court’s award of attorney
fees to Mounteer as the prevailing party. And because the HOA is
now the prevailing party, we remand to the district for an award of
its fees.
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